Arcade Textiles, Inc. v. Security Insurance , 51 F. App'x 448 ( 2002 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ARCADE TEXTILES, INCORPORATED; 
YORK COUNTY INDUSTRIES, LIMITED,
Plaintiffs-Appellants,
v.
SECURITY INSURANCE COMPANY OF  No. 01-2393
HARTFORD,
Defendant-Appellee,
ADJUSTERS INTERNATIONAL,
Movant.

Appeal from the United States District Court
for the District of South Carolina, at Rock Hill.
Joseph F. Anderson, Jr., Chief District Judge.
(CA-98-2562-0-17)
Argued: October 30, 2002
Decided: December 3, 2002
Before WILKINS, NIEMEYER, and KING, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: David J. Gundling, THE GUNDLING LAW FIRM, Paw-
leys Island, South Carolina, for Appellants. George Terrell Davis,
ROBINS, KAPLAN, MILLER & CIRESI, L.L.P., Atlanta, Georgia,
for Appellee. ON BRIEF: John Thomas Lay, Jr., ELLIS,
2 ARCADE TEXTILES v. SECURITY INSURANCE CO. OF HARTFORD
LAWHORNE, DAVIDSON & SIMS, P.A., Columbia, South Caro-
lina, for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Appellants Arcade Textiles, Inc. (Arcade) and York County Indus-
tries, Ltd. (York) appeal an order of the district court granting sum-
mary judgment to Security Insurance Company of Hartford (Security)
on Appellants’ claims for bad faith denial of an insurance claim,
improper claim practices, and breach of contract. We affirm.
I.
Arcade owned and operated a textile mill in Rock Hill, South Caro-
lina. Located within the mill were equipment and machinery owned
by York and goods owned by Arcade’s customers. On November 3,
1997, a major fire damaged the mill and its contents.
Arcade had obtained from Security a commercial insurance policy
that, as is relevant here, covered the business personal property of
Arcade, York, and various other companies for $4.42 million. It
quickly became clear to Security that claims would exceed the policy
limits. Appellants alone claimed losses of over $6.6 million. Addi-
tionally, one of Arcade’s customers sued Security for over $750,000
in losses from the fire, and another claimed losses of approximately
$556,000 and threatened to sue Security if it made any payment to
Arcade "on a preferential basis." J.A. 133. In addition to these claims,
Security was aware of numerous potential claims by Arcade’s cus-
tomers and their insurers.* Security was uncertain about the priority
and proper allocation of these potentially conflicting claims.
*The parties disagree about the total amount of claims asserted by
Arcade’s customers, but we need not resolve this dispute because there
is no question that the combined claims of Appellants and Arcade’s cus-
tomers far exceeded the $4.42 million coverage amount.
ARCADE TEXTILES v. SECURITY INSURANCE CO. OF HARTFORD 3
To resolve these issues, Security filed a statutory interpleader
action, see 28 U.S.C.A. § 1335 (West 1993), naming as defendants
Arcade, York, NationsBank (to which Appellants had assigned certain
rights to the insurance proceeds), and many customers of Arcade. The
following day, Appellants filed this suit against Security, alleging bad
faith failure to pay benefits due under the policy; improper claim
practices, see S.C. Code Ann. § 38-59-20 (West 2002); and breach of
contract. The district court stayed the breach of contract claim pend-
ing the resolution of the interpleader action. Both sides moved for
summary judgment on the remaining claims.
The district court held that Security was entitled to summary judg-
ment on the bad faith claim because it had a reasonable basis for fil-
ing the interpleader action instead of directly paying Appellants’
claims. The court emphasized that even accepting Appellants’ argu-
ment that many of the purportedly competing claims would have been
eliminated if Security had investigated and adjusted them, the total
amount of claims still would have exceeded the policy limits. The
court also rejected Appellants’ argument that Security could have
made at least a partial payment to Appellants, explaining that nothing
in the policy obligated Security to make partial payments and that any
claimant could argue it was entitled to partial payment, thus putting
Security in an impossible position.
The district court also granted summary judgment to Security on
Appellants’ claim for improper claim practices. The court noted that
the basis for Appellants’ claim was actually S.C. Code Ann. § 38-59-
40(1) (West 2002), which permits recovery of attorneys’ fees when
the trial court finds that an insurer has refused to pay a claim without
reasonable cause or in bad faith. Because the district court had already
found that Security had a reasonable basis for filing the interpleader
action, the court held that Appellants could not recover attorneys’
fees.
Finally, the district court concluded that Appellants’ breach of con-
tract claim had been resolved in the interpleader action, which had
settled, and thus dismissed that claim. In a later order, the district
court rejected Appellants’ argument that to the extent their breach of
contract claim sought consequential damages, it survived the inter-
pleader settlement. The court also explained that under South Caro-
4 ARCADE TEXTILES v. SECURITY INSURANCE CO. OF HARTFORD
lina law, a plaintiff’s recovery for breach of an insurance policy is
normally limited to the policy amount; a plaintiff may recover conse-
quential damages only if the insurer acted unreasonably or in bad
faith. Thus, the court concluded that Appellants were trying to
"bootstrap" a breach of contract claim into a claim for bad faith—
which the court had already rejected. J.A. 596.
II.
Having reviewed the parties’ briefs and the applicable law, and
having had the benefit of oral argument, we conclude that the district
court correctly granted summary judgment to Security. Accordingly,
we affirm.
AFFIRMED